Private Equity Might Be Like Shock Therapy, But it Does a Company Good, Study Finds
The World Economic Forum today released a new study that concludes that private equity-backed companies are more productive than their public, privately managed and government-backed counterparts. For proponents of the “leverage creates discipline” school of thought, this news should come as no surprise. Companies with a heavy debt load are quicker to close inefficient plants or abandon a money-losing strategy. But in the world of public relations, this doesn’t necessarily make PE pros out to be heroes, especially since the study found that greater productivity doesn’t translate to higher wages for employees. I think it’s more important to determine whether private equity creates greater productivity and better discipline, and therefore, better companies, in the long term. No one studies what happens to PE-backed companies two or five years after their PE backers exit. I asked Josh Lerner, a Harvard Business School professor and co-editor of the report: Did the study address whether this productivity is sustainable?
